Commissioners of Inland Revenue v Oldham Training and Enterprise Council
| Jurisdiction | England & Wales |
| Judgment Date | 01 January 1995 |
| Date | 01 January 1995 |
| Court | Special Commissioners |
special commissioners decision
1.1 The Appellant, Oldham Training and Enterprise Council, is a company limited by guarantee. It was incorporated, under another name, on 3 May 1989. Its present name and constitution derive from special resolutions passed on 13 March 1990. Save as regards an amendment to the remuneration provisions mentioned below, the appeal proceeded on the footing that we were not concerned with the constitution of the Appellant prior to these resolutions taking effect, that is to say that the appeal should be decided on the basis that there was no difference which was material to the appeal between the pre 1990 and the post 1990 constitutions.
1.2 Assessments to Corporation Tax have been raised against the Appellant under Case 3 of Schedule D in respect of deposit interest. These assessments are dated 5 September 1991, 23 September 1991 and 21 October 1992 and are in respect of the periods 1 July 1989 to 31 March 1990, (the first two assessments) and 1 April 1991 to 31 March 1992. There is a further assessment before us also dated 23 September 1991 under Cases 1 and 2 of Schedule D. The net tax payable under this assessment is £37,992.96. However the Crown concedes that this assessment was raised in error and should be discharged and we discharge it. Accordingly the appeal relates only to the three remaining assessments under Case 3 of Schedule D. All of these assessments are in respect of yearly interest of the Appellant. The Crown did not seek to argue that the Appellant is taxable as a trader. It is only the Appellant's deposit interest which it has sought to tax.
1.3 The Appellant appeals against the assessments on the grounds that it is entitled to exemption under section 505 Income and Corporation Taxes Act 1988 ("the Act") as a charity within the definition in section 506(1) of the Act, (section 505 is made applicable to Corporation Tax by section 9(4) of the Act). The definition of charity in section 506(1) provides that "charity" "means any body of persons or trust established for charitable purposes only". The Crown contests the appeal on the grounds that, as the Crown contends, the Appellant is not established for charitable purposes only.
1.4 We should mention at this point that, in order to obtain exemption under section 505 of the Act in respect of any yearly interest, it is not sufficient for the relevant body or trust simply to satisfy the condition of being established exclusively for charitable purposes. It is also necessary for the interest in question to be "applied to charitable purposes only". However, in the present case, the sole issue before the Tribunal is whether or not the first condition of section 505 is satisfied. It is not contended by the Crown that, if the Appellant is a section 505 charity, the relevant interest is still taxable on the basis of non-charitable application.
2.1 The relevant facts are set out in an agreed statement supported by an agreed bundle of documents. The facts in the agreed statement, so far as material to our decision, are as follows:
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(2) In December 1988 the Government issued a White Paper called "Employment in the 1990s" (CM 540), a copy of which is in the agreed bundle. One of the proposals in the White Paper was the creation of "Training and Enterprise Councils" ("TECS") such as the Appellant.
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(3) The Employment Act 1989 enacted some of the proposals in the White Paper, but did not place TECS on a statutory footing. They were to be private law bodies which contracted with the Government, through the training agency to attain the objectives envisaged by the White Paper.
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(4) As already mentioned, the Appellant was incorporated on 3 May 1989 and reconstituted on 13 March 1990.
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(5) At all material times the members of the Appellant have also been directors.
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(6) The Appellant's activities fall under three main headings as follows:
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(a) Enterprise Services, which include information and advice to businesses, diagnostic services (assessment of a businesses' strengths and weaknesses and opportunities for development) and business skills training (planning, financial management, identification of new markets etc.).
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(b) Business start-up services, which include a free enterprise training scheme for anyone thinking of setting up a new business (in such subjects as marketing and bookkeeping) and a cash allowance of up to £60 per week for people setting up new businesses (such allowance not to exceed £2,800 in total in the case of any one individual). To qualify for such an allowance (which is in lieu of any unemployment or social security benefits) the recipient must
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(i) have been unemployed for at least six weeks,
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(ii) be starting a business judged by the Appellant to have potential for the employment of more people,
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(iii) have attended a business training scheme and be able to produce an acceptable business plan and
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(iv) have access to sufficient capital.
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(c) Training, which includes training young people for work and re-training unemployed people.
(7) As foreshadowed in the White Paper the provision of the above services is generally made by sub-contractors - mainly private sector firms and universities and colleges. Where the services are not provided free, the cost is shared between the recipient business and the Appellant.
(8) The activities of the Appellant are funded by government grants and are governed by operating agreements made with the relevant Secretaries of State.
(9) The determination which is the subject of this appeal is contained in a notice from the Deputy Controller FICO (Trust and Charities) dated 20 June 1994 to the effect that the Appellant is not entitled to exemption from tax under section 505 of the Act for the period 1 August 1989 to 31 March 1992.
(10) The Appellant has not sought registration as a charity and the Charity Commissioners have expressed the view (in a letter to Mr Syd Stagg of the Revenue office making the determination) that the Appellant is "not established for charitable purposes exclusively".
2.2 In addition to the documents in the agreed bundle, two further documents were produced at the hearing. One of them was a pro forma "TEC Operating Agreement". It was common ground that this was a mere specimen agreement and might or might not correspond with any agreement actually entered into by the Appellant. Neither party relied on this document and the case proceded on the footing that the activities of the Appellant were at all material times as described in the agreed statement of facts. The second document was part of an "Evaluation of DTI funded TEC services". We have not derived any assistance from this second document, save to note the statement towards the end of p.11 that within stated broad objectives "each Training and Enterprise Council sets its own objectives and priorities".
3.1 The objects of the Appellant are set out in paragraph 3(1) of the 1990 Memorandum of Association of the Appellant. (The agreed bundle contains only a copy draft to this memorandum dated 25 July 1989, but it is common ground that the draft represents the terms of the memorandum as adopted in 1990.) Paragraphs 1 and 2 of the memorandum refer merely to the name of the company and the situation (in England) of its registered office. We set out Clause 3(1) in full:
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3(1) The company is established to promote and provide vocational education and training and re-training of the public, to improve the skills of the workforce and to promote the development of industry, commerce and enterprise of all forms for the benefit of the community in and around Oldham and in furtherance of these objects and for these purposes (but without prejudice to the generality of the foregoing) to:-
(a) examine the local labour market and assess key skill needs, prospects for increasing local employment and the adequacy of existing training opportunities:
(b) devise, implement and monitor local training education and work experience programmes for young people, unemployed people and adults requiring new knowledge, skills and technical training;
(c) develop, secure and provide training, advisory, consultation and other support services and advice to and for local businesses;
(d) promote the development of existing businesses and the establishment of new businesses.
and it is hereby declared that the objects of the company as specified above shall be separate and distinct objects of the company and shall not be in any way limited by reference to any other paragraph of this clause or the order in which the same occur or the name of the company.
3.2 Before turning to the other provisions of the Memorandum and Articles it will be helpful if we indicate our general conclusions as to the proper construction of the objects in paragraph 3(1) of the memorandum as follows:
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(2) The opening section of paragraph 3(1) describes three main categories of objects, the first being the provision of "vocational education and training and re-training of the public", the second being the improvement of the "skills of the workforce" and the third being the development of "industry, commerce and enterprise".
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(3) It is conceded by the Crown that, if the first two of these three categories of objects stood alone, the objects of the Appellant would be charitable as falling under the head of education. The issues between the parties arise out of the third of the three categories of object, namely the development of "industry, commerce and enterprise".
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(4) It was initially contended by the Crown that the term "enterprise" in the third of the three categories of objects should be construed independently of the preceding expressions "industry" and "commerce". Despite the existence of the final provision...
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